Political Institutions, Policy Expectations, and the 1980 Election: A Financial Market Perspective

The policy implications of the 1980 general election are reevaluated in an effort to disentangle the separate effects of having elected both a Republican president and a Republican-controlled Senate. Changes in the value of politically sensitive financial assets in response to changes in the probable outcome of the election provide the empirical evidence necessary to assess the expected course of public policy. With respect to anticipated increases in defense spending, significant and disparate reactions distinguish Republican control of the Senate from the election of Ronald Reagan.